The sports betting and iGaming world has reached a relative state of maturity in the United States. However, payment processing in sports betting is complex due to strict regulations and compliance requirements. As more states codify their regulatory frameworks for the sports betting industry, operators are focused on optimizing their authorization rates and ensuring compliance across these jurisdictions.
Finding a sports betting merchant account is more than just finding a bank that is willing to work with you. Your software and technical infrastructure must meet the regulatory requirements in each of these states. As such, the payment industry for sports betting and iGaming has evolved to meet these regulatory demands.
More specifically, operators compete to improve approvals, payouts, and user experience. As such, issues such as authorization rates and withdrawal times are of utmost importance to these companies. The Merchant Category Code for betting and gambling (MCC 7995) varies by bank. Those with better technical capabilities and risk controls will likely secure better authorizations during the underwriting process for sports betting merchants.
In this article, we will discuss the current state of gambling and the payment solutions available to the industry with a focus on the infrastructure requirements for 2026. Geolocation mandates, best practices for managing funds, and approaches to minimizing fraud in the sports betting and iGaming will be highlighted for readers within the payment industry and the gaming sector. Gaining an understanding of the infrastructure behind sports betting and iGaming will allow companies to better manage their authorizations and remain compliant within the increasingly regulated global market for gambling and gaming products and services.
How Gambling Payment Regulation Has Evolved
The primary change in the industry over the last several years has been the shift towards total transparency in how transactions are processed within regulated gambling environments. The practice of processing transactions through the “gray market” or via transaction descriptors that make it appear the transaction is occurring outside the issuing bank’s regulations has long since disappeared. Instead, the card networks (Visa, Mastercard, American Express, and Discover) have established regulatory frameworks that enable legal gambling transactions within jurisdictions where gambling is permitted. Within these transaction messages, a new component, the Gaming Indicator, is included to inform the issuing bank of the transaction’s legal and regulated status.
While the inclusion of such an indicator has improved the rates of bank-authorized transactions, the Gaming Indicator’s compliance requirements have increased the complexity of compliance for gambling companies. As with all transactions, an audit trail is required to prove that the bettor was engaging in gambling activities within a legal jurisdiction at the time the transaction was initiated. To meet this requirement, integration between the payment gateway and the gambling operator’s software is required. Thus, as a result of these compliance requirements, payment gateways for gambling operators are integrated components of the gambling company’s technology stack.
The Significance of MCC 7995 and Transaction Routing
All gambling transactions are processed under MCC 7995, which has experienced high transaction declines due to the banks that issue the cards’ risk-based policies. While most major credit card companies have implemented more lenient policies for sports betting transactions, some still have hard, restrictive blocks in place for this type of transaction. For this reason, the routing and orchestration of payments are essential for sports betting companies seeking to provide the best possible experience for customers who pay for sports betting software and services.
To accommodate customers whose transactions are declined by one bank or service, an orchestration system must be in place that directs them to alternative payment methods. Furthermore, to reduce the number of false declines of customer transactions, the sports betting software will need to incorporate logic that recognizes the BIN and the regulations of the state where the customer places their bets.
Underwriting and Risk Mitigation in 2026
Underwriting for sports betting merchant accounts is a high-touch process that assesses the financial and compliance status of the merchant. Banks will look at the projections for the GGR (Gross Gaming Revenue) that the sports betting merchant will take in, the ratio of their debt to their equity, and the experience of the executives of the sports betting merchant.
Because the sports betting industry has high volumes with low margins for new entrepreneurs, banks will require a letter of credit or rolling reserve to be established as collateral for the merchant account. This requirement will be waived for sports betting merchants with a strong and clean compliance history, but will be required of those just entering the sports betting space.
Furthermore, merchants will be required to provide documentation on the Source of Funds for each of the sports betting company’s primary investors to ensure that their funds are not derived from illicit activities.
Managing Chargebacks and Friendly Fraud
Within the gambling space, chargebacks usually result from “friendly fraud” – the individual losing a bet returning to the merchant with a claim that the transaction was unauthorized. To avoid chargebacks, merchants must maintain a digital trail for every transaction. Such evidence includes the user’s device fingerprint, their geolocation at the time of the bet, and proof that they completed KYC to register on the gambling site. These elements presented to the card issuer are the only way to successfully defend a customer’s transaction.
For merchants who offer sports betting services, maintaining a chargeback rate below 1% is imperative to the survival of their merchant account. To do this, many sportsbooks use pre-chargeback alert services that notify them when a customer initiates a chargeback to their bank. By contacting the customer at this early stage, the merchant can resolve the issue before it is charged to their merchant account. In the 2026 gaming and gambling industry, maintaining an automated chargeback management system will be a mandatory component of any payment system for gambling businesses.
The Role of Alternative Payment Methods (APMs)
Aside from being the most popular method of depositing funds into gambling sites, alternative payment methods (APMs) have become increasingly common among those looking to avoid blocks on their cards by their issuing companies, as well as the costs of processing those cards. Methods such as Pay-by-Bank (Open Banking) protocols, PayPal, Venmo, and other prepaid cards are becoming essential components of gambling site payment solutions. Each of these methods typically uses lower rates than those associated with credit cards and provides an easier way for users to withdraw their winnings.
The integration of these alternative payment methods requires the creation of an orchestration layer to collect data from each provider and consolidate it into a single reporting dashboard for the merchant. Additionally, the merchant must manage deposit and withdrawal times for each of these alternative payment methods. For instance, if a user deposits via ACH but intends to withdraw via a digital wallet, the gambling site would have to manage that closed-loop system to prevent issues like money laundering.
Data Security and PCI Compliance for Gaming Operators
As the industry handles a vast amount of sensitive data, it is a prime target for cybercriminals. While complying with PCI DSS is required, most gaming merchant operators go a step further by using end-to-end encryption and tokenization for their transactions. By tokenizing payment card data at the point of entry, the merchant avoids storing sensitive data in their environment. This significantly reduces the merchant’s compliance and security risks.
Beyond payment data, operators must also ensure that the “Personally Identifiable Information” (PII) collected during the KYC process is protected. The data infrastructure must comply with the data security regulations of the states whose data is being accessed, such as the CCPA in California. Exposing this data could result in the merchant losing their gambling license. For 2026 and beyond, the intersection of cybersecurity and payment card compliance will be where the most successful gambling merchants provide their customers.
Future Outlook: Cryptocurrency and CBDCs in Gambling
The latter half of the decade offers opportunities to integrate CBDCs and stablecoins into the gambling space. While most states have banned cryptocurrency for gambling, gateways for crypto-to-fiat transactions are being tested in other countries. These solutions allow users to deposit in cryptocurrency but spend it on gambling platforms after it is converted to United States dollars.
The regulation of these technologies has yet to be established. However, companies that develop gambling software and platforms should focus on creating platforms that can support new payment methods for gambling products and services as they are established. The licensing, geolocation, and know-your-customer (KYC) requirements for the industry will remain the same across all currencies. Thus, the companies that master the regulations for gambling platforms today will be the leaders in incorporating new payment technologies for the future of gambling.
The Six Pillars of Gambling Payment Infrastructure
State-Level Licensing Verification
The first of the six pillars of gambling payment infrastructure is the verification of the license of the company in every state in which it takes wagers. The acquiring banks will scrutinize the license of the merchant to ensure that it does not violate the Federal Wire Act in relation to “crossing state lines.” To accomplish this task, the gambling company will need to ensure that their transactions are categorized according to the state in which they hold their license for gambling companies. Each state will have its own merchant ID (MIDs) and merchant account for their transactions.
Geolocation and IP Mapping Integration
According to the state in which the gambling company holds its license, its transactions should only occur within the borders of that state. The methods of ensuring this are through the integration of geolocation software into the merchant’s systems. This software will track the player according to Wi-Fi, GPS, and IP data to determine the location of the person placing the bets. If the player is not located within the state in which the merchant holds its license for gambling, the transaction will be automatically rejected and unable to reach the card network.
Enhanced KYC and AML Protocols
Gambling company payment systems are subject to some of the strictest anti-money laundering (AML) and know your customer (KYC) programs within the financial world. These programs require players to be cross checked against lists such as the Office of Foreign Assets Control (OFAC) or self-exclusion lists for gambling addicts. To do this, the gambling company will need to integrate with third party software that can access information about the players such as their social security numbers, dates of birth, and addresses. Any difficulties in this step can result in players abandoning their attempts to deposit money into the gambling company’s accounts.
Transaction Monitoring and Velocity Limits
To avoid problems caused by problem gambling addictions, there will have to be velocity limits placed into the system according to the requirements of the gambling company and according to each state in which they play. For instance, a player cannot perform more than five transactions within a 24 hour time period with a gambling company with a given amount of money. Such limits will be tracked by a centralized database that tracks players activity with each of their payment methods to ensure that they cannot bypass these limits by utilizing a different payment method.
Payout Speed and Liquidity Management
Another pillar within the gambling world for 2026 will be the speed at which the company can distribute winnings to players. Known as original credit transactions (OCT) or real time payments (RTP), the distribution of winnings is one of the main features of interest of sports betting companies for 2026. To be able to offer this service, a company will have to maintain high levels of liquidity within their payment methods and have the technical systems to handle thousands of payments being made to players at the same time. Additionally, companies will have to worry about reversal fraud, where a player tries to get their winnings from a deposit that has not yet settled within the bank.
Card Network Compliance Programs
In addition to needing licenses from each state in which they play, sports betting companies will have to register with both the Visa and Mastercard networks for legal gambling merchants. Programs like the Mastercard Registration Program (MRP) require that the merchant company is registered with the acquiring bank for that gambling company, and that that company pays an annual fee to the Mastercard network. The merchant will have to prove to the acquiring bank that they are legal entities with licenses for gambling, and legal opinions regarding their operations. The company cannot fall behind in these programs, as they will lose the ability to take payments from credit and debit cards.
FAQs
Q: Can I use a standard retail merchant account for my sports betting business?
A: No. Using a standard retail merchant account for sports betting is a clear violation of the rules established by the card networks. Using such an account will result in immediate termination of the account and possible placement on the MATCH list of merchants that have violated those rules. All gambling transactions must be coded as MCC 7995 and must use a merchant acquirer approved to provide gambling services to merchants, and that has registered that merchant with the card networks.
Q: What are the reasons for deposit declines?
A: The most common reason for deposits being declined is due to a bank-imposed blocking of MCC 7995 transactions, as some banks still have policies against MCC 7995. Other reasons for declined deposits include insufficient funds in the player’s account, use of a corporate/business credit card, and failure of the merchant’s geolocation check, which is required to initiate the deposit.
Q: What is an “Original Credit Transaction” and how does it relate to sports betting or gambling?
A: An “Original Credit Transaction” (OCT) is a transaction type created by the credit card networks that allows the balance of a player’s sportsbook account to be deposited directly into their credit or debit card. This transaction takes place almost instantly after a player initiates a withdrawal request from their sportsbook account. This contrasts with ACH withdrawals, which take several business days to complete.
Q: Is a rolling reserve required for sports betting payment solutions?
A: While not all sports betting payment solution providers require a rolling reserve, it is a requirement for most merchant accounts for sports betting establishments. Most merchants are required to hold a 5%–10% reserve of their gross sports betting volume for 6 months. This amount will be returned to the merchant at the end of the term. Larger sports betting companies with significant balance sheets may be able to negotiate a lower reserve requirement.
Conclusion
To secure and maintain a sports betting merchant account in 2026, an organisation will have to take a more sophisticated approach to its payment infrastructure. The ability to navigate the complexities of MCC 7995, state licensing requirements, and fraud will ultimately determine the success of their sports betting platform.
By creating redundant payment infrastructure for merchant accounts, sports betting platforms can enjoy greater resilience amid the ever-changing regulatory landscape.
With increasing emphasis on the speed and security of funds, integrating features such as instant payouts, geolocation, and KYC will be key to gaining the trust of both regulators and players. In the world of sports betting, the payment infrastructure is the ultimate source of competitive advantage.
Sources
- Visa. “Visa Core Rules and Visa Product and Service Rules.” Accessed March 2026.
- Citi Bank. “Merchant Category Codes.” Accessed April 2026.
- FinCEN. “Anti-Money Laundering Laws and Regulations for Gaming.” Accessed March 2026.
- American Gaming Association. “State of the States: The Regulated Gaming Industry.” Accessed March 2026.
